Ethereum's Profit Maximization: A Matter of Pricing Blockspace?

Ethereum OG Andrew Keys thinks the cryptocurrency should maximize profits by increasing blockspace prices as it becomes more competitive. However, the concept of layer-one blockchains is not meant to be profit-maximizing. Instead, the goal is to make blockspace as cheap as possible to encourage high onchain usage. Token holders may benefit from higher prices, but making transactions expensive solely for profit seems counterintuitive to the crypto ethos.

Stablecoin issuers are increasingly building their own blockchains to capture a larger share of the transaction fees generated by the $277 billion stablecoin market. According to Ben Reynolds, managing director of stablecoins at BitGo, launching a dedicated chain gives issuers more control over settlement and compliance, while also opening up new revenue streams from fees and network activity [1].

This trend poses a significant challenge for Ethereum and Tron, which currently dominate the stablecoin market, capturing over 80% of it. If issuers move off these blockchains, it could substantially impact the fee revenue of these platforms, especially considering that stablecoins are projected to account for 12% of global payments by 2030 [1].

Tether, Circle, and Stripe are already leading the way in this shift. Tether is working with startups like Plasma to create dedicated blockchains for its $167 billion USDT stablecoin. Circle and fintech giant Stripe have also announced plans to create their own stablecoin blockchains. These issuers, who account for almost a quarter of the daily transaction fees across the entire DeFi sector, are aiming to control the infrastructure as much as they are to maximize profits [1].

While these new blockchains offer specialized features tailored to stablecoins, such as payments and yield, they could fragment activity and reduce Ethereum’s centrality in the market. Young Cho, CEO of StablecoinX, an Ethereum treasury company, believes that these newer blockchains could complement Ethereum rather than undermine it. Ethereum remains the biggest DeFi chain, and stablecoins are a major part of the DeFi market, with over half of the stablecoin market transacting on Ethereum [1].

Despite the potential challenges, these new blockchains might converge to have some form of interoperability among themselves. Thomas Cown, head of tokenization at Galaxy Digital, suggests that the rise of issuer-owned blockchains could create competitive dynamics with the openness of fully public chains like Ethereum [1].

In another development, Ethereum has seen significant institutional validation through ETF inflows. In August alone, Ethereum ETFs saw inflows of $729.14 million, $523.92 million, and $102 billion, indicating a steady demand for the asset [2]. This institutional interest is driving Ethereum's price appreciation, with the coin surging close to 30% over the past month.

The discussion around Ethereum’s future is also influenced by Andrew Keys' perspective. Keys believes that Ethereum should maximize profits by increasing blockspace prices. However, the traditional goal of layer-one blockchains is to make blockspace as cheap as possible to encourage high on-chain usage. While token holders might benefit from higher prices, making transactions expensive solely for profit seems counterintuitive to the crypto ethos.

As Ethereum and other blockchains adapt to the evolving landscape of stablecoins, the industry will continue to watch how these developments shape the future of decentralized finance and cryptocurrency markets.

References:

[1] https://finance.yahoo.com/news/why-stablecoin-issuers-spinning-own-171457644.html

[2] https://www.tradingview.com/news/99Bitcoins:c69364c0e094b:0-3-altcoins-to-watch-in-september-for-gains-spacepay-ethereum-dogecoin/